Divided Europe

Euro Zone Leaders Wait for Greece

epa04835814 Greek Prime Minister Alexis Tsipras (C), German Chancellor Angela Merkel (L) and French President Francois Hollande (R) attend a special Eurozone summit at the EU Council headquarters in Brussels, Belgium, 07 July 2015. Eurozone member states are waiting for Greek proposals in order to discuss a new aid programme for Greece. The country is rapidly running out of money after the European part of Greece's latest bailout expired June 30 after no agreement was reached for more aid between Greece and its international creditors. EPA/OLIVIER HOSLET
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  • Why it matters

    Why it matters

    It’s a matter of days now – not weeks – for a final decision on whether to give Greece the aid it needs to stay in the euro zone.

  • Facts

    Facts

    • Greek prime minister, Alexis Tsipras, and new finance minister, Euclid Tsakalotos, held talks with their euro zone counterparts in Brussels on Tuesday.
    • French Prime Minister Manuel Valls has said a Grexit would be a “risk for global economic growth.”
    • German E.U. Commissioner, Günther Oettinger, said if Greece starts to issue IOUs it cannot remain in the euro zone.
  • Audio

    Audio

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As Greek Prime Minister Alexis Tsipras and his new finance minister, Euclid Tsakalotos, arrived in Brussels on Tuesday, the reception from their euro zone partners was frosty.

The work is cut out for Europe’s leaders as they seek ways to keep Greece in the 19-country euro zone and re-open Greece’s banks, which have been closed since last week and are in danger of facing bankruptcy in the coming days.

The country is fast running out of euros, making an exit from the euro zone all but inevitable if Athens is forced to issue either IOUs or a new currency to continue paying its bills.

Many of the other 18 countries in the currency union have lost all patience with the Greeks, particularly after Sunday’s referendum, which saw 61 percent of Greeks reject its international lenders’ proposals.

Tuesday marked a baptism of fire for Mr. Tsakalotos, the Oxford-educated economist who replaced the combative Yanis Varoufakis on Monday. Greece’s new finance minister met with his euro zone counterparts in Brussels this afternoon.

Despite the urgency of Greece’s financial situation, and to the chagrin of many of his colleagues, Mr. Tsakalotos brought with him no specific new proposals to break the deadlock. He offered a briefing, outlining some changes, but no written document.

The leaders of the euro zone also met in Brussels for an emergency summit Tuesday evening. But with no document to work from and no progress by their finance ministers, they were unable to take any final decisions by the end of the day.

The absence of new proposals has left leaders across Europe waiting, while Greece steps closer and closer to the abyss. Greece has now been given until Thursday to present new proposals, and an emergency summit of all 28 European Union leaders has been called for Sunday.

German Chancellor Angela Merkel said there was still “no basis” for new negotiations. But time is tight, she warned: “This is no longer about weeks but about days.”

Sunday now looms as the final, final deadline for the Greek impasse to be resolved – or for the two sides to go their separate ways.

The mood in Brussels is pessimistic. High-ranking E.U. diplomats told Handelsblatt ahead of Tuesday’s talks that there was little hope that Greece could remain in the euro zone, and that preparations were already being made for a Greek exit from the currency bloc.

However, there now seems to be a division emerging in the euro zone about whether to finally let Greece go, or make a final push to keep the country in the currency zone. A division that cuts through the heart of the Franco-German alliance that forms the heart of the European Union.

“An insolvent country that introduces a parallel currency does not fit into the euro zone.”

Günther Oettinger, Germany's E.U. commissioner

The Greek radical left politicians have felt emboldened by their victory in the referendum, which Mr. Tsipras called after failing to persuade the country’s lenders to agree to ease austerity conditions and restructure Greece’s massive debt burden.

Furthermore, after a lengthy meeting Monday between all party leaders in Greece, apart from the far-right Golden Dawn, Mr. Tsipras and his finance minister headed to Brussels with the backing of most of the political establishment.

After the six-hour meeting, chaired by the Greek president, the leaders of Greece’s five main political parties issued a statement saying they wanted any negotiation to include a discussion of relief from the country’s debt load – a key sticking point.

Yet, that will be a tough sell.

The Greek daily Kathimerini, citing sources in Brussels, reported that 16 of the other 18 countries in the euro zone are now in favor of letting Greece go.

In general, Northern and Eastern European countries have been the most hardline, pushing for Athens to be cut off once and for all, while the South, including Spain, Italy and France, are thought to be more sympathetic.

In particular, poorer Eastern European countries are resentful that they are being asked to sweeten the deal for Greece, a country with a much higher living standard than many of them enjoy.

The divisions threaten to crack the leadership alliance that Germany and France have forged in recent months and years on the euro crisis.  Now it appears that Germany is leading the hardline camp, while France is trying to position itself in a mediator role.

Bismark Merkel BILD1
Bild front cover: “No new billions for Greece. Today we need the Iron Chancellor.” Source: Bild

 

Germany remains unconvinced that Mr. Tsipras can really come up with any new proposals that will avoid Greece’s exit from the euro, the scenario that has become known as “Grexit.”

“The last offer that we made was a very generous one,” Chancellor Merkel said on Monday in Paris, where she held talks with French President Hollande. “On the other hand, Europe can only stand together if each nation takes on its own responsibility.” The chancellor said that there was no current basis for negotiating with the Greek side and called on Mr. Tsipras to make the next move.

Ms. Merkel knows that public opinion in Germany is now firmly in favor of a Grexit and her own party is in no mood to back any deal that lets Greece off the hook on reforms, which policymakers in Germany and other European nations view as critical for Greece to get its government finances back on track.

Germany, along with Finland, the Netherlands, Estonia, Slovakia and Austria, has to hold a parliamentary vote on any new bailout for Greece.

Tuesday’s cover story in Bild, the best-selling German newspaper that has been particularly tough on Greece for the past few years, depicts Ms. Merkel as Bismarck, and calls on her to be the “Iron Chancellor” today.

Germany’s E.U. commissioner, Günther Oettinger, told the newspaper, in an interview published on Tuesday, that the Greek government would probably have to start issuing IOUs to pay wages and pensions and settle outstanding accounts, and that would have to mean Greece could not remain in the euro zone.

“An insolvent country that introduces a parallel currency does not fit into the euro zone,” he said. “We have a curious situation whereby Greece is a member of the euro zone but it hardly has any euros at the moment.”

Mr. Oettinger, who holds the digital agenda portfolio in Brussels, said it made no sense to hold fresh talks with Greece if Athens continued to reject reforms.

In Germany, any remaining goodwill toward the Greeks has been eroded by the stance of Mr. Tsipras and his former minister, Mr. Varoufakis, who likened the country’s lenders to “terrorists” over the weekend.

“Every basis for trust has now been destroyed,” Ralph Brinkhaus, deputy floor leader for Ms. Merkel’s Christian Democrats, told Handelsblatt.  “The Greek government now has to show what plan it has for Greece and pro-actively take measures to build trust.”

The Social Democrats, junior partners in Berlin’s ruling coalition, have been talking just as tough on Greece. Carsten Schneider, the party’s deputy floor leader in parliament, said any new help without reforms was “unthinkable.”

The French, in contrast, are distinctly less hawkish.

Tspiras and Greek party members_ AP
The leaders of the main Greek parties held a six-hour meeting on Monday. Source: AP

 

Mr. Hollande said on Monday night that “the door is open for discussion” and called on Mr. Tsipras to offer “serious, credible proposals so that this willingness to stay in the euro zone can translate into a lasting program.”

On Tuesday, the French prime minister, Manuel Valls, said his country will do everything possible to keep Greece in the euro zone, saying its exit would be a “risk for global economic growth.”

In an interview with RTL radio he said that the Greek “no” vote was an expression of pride, rather than a rejection of Europe, and added: “The euro zone must stay coherent, reliable. Europe is not just a currency. It is a conception of the world.”

Furthermore, while the spokesman for the German finance ministry, Martin Jäger, said on Monday that a debt haircut “is not on the table for us,” France’s finance minister, Michel Sapin, insisted talking about the debt should not be taboo.

“The burden of debt in the coming months and years is too high for Greece to be able to pick itself up again.”

“The burden of debt in the coming months and years is too high for Greece to be able to pick itself up again.”

Michel Sapin, French Finance Minister

It makes it difficult for Ms. Merkel, who would like to be on the same page as the French. She wants to avoid taking the blame for pushing Greece out of the euro zone.

A decision has to be made soon, one way or another.

The Greek financial system is hanging by a thread, with the bank holiday extended to Wednesday and likely through the week. The European Central Bank is awaiting a firm political decision, but tightened the screws on Monday when it decided to raise the discount it charges Greek banks on collateral they have to present for emergency funding, or ELA.

This means banks have less available funds to deal with the ongoing drain on the banks via the ATMs, with capital controls allowing each account holder to withdraw just €60 a day.

Greece missed a debt repayment to the International Monetary Fund on June 30, the day its bailout program expired. It is due to pay €3.5 billion on bonds held by the European Central Bank on July 20. That would be impossible unless Greece gets some financial aid.

The market reaction has been muted, with the euro down marginally but no signs of panic.

Siobhán Dowling and Christopher Cermak are editors with Handelsblatt Global Edition in Berlin. Handelsblatt correspondents Ruth Berschens in Brussels, Thomas Hanke in Paris and Jan Hildebrand in Berlin contributed to this report. To contact the authors: dowling@handelsblatt.com and cermak@handelsblatt.com

This story was last updated with details of Tuesday’s negotiations at 11pm Central European Time.

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